England and Wales Court of Appeal (Civil Division) Decisions

		Neutral Citation Number: [2002] EWCA Civ 910
		Case No: A2/2001/2845

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN’S BENCH DIVISION
Buckley J

		Royal Courts of Justice Strand, London, WC2A 2LL
		26th June 2002

B e f o r e :

LORD JUSTICE BROOKE
and
LORD JUSTICE KAY
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Between:


	MICHAEL PATRICK SAYERS	Claimant/ Respondent
	- and -
	CLARKE WALKER (A firm)	Defendants/ Appellants

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(Transcript of the Handed Down Judgment of
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____________________

Robert Anderson (instructed by Hammonds Suddards Edge) for the Appellants
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HTML VERSION OF JUDGMENT
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Lord Justice Brooke : This is the judgment of the court.

1. On 14^th May the court gave its reasons for extending time for appealing in this case see [2002] EWCA Civ 645. This judgment is concerned with the merits of the proposed appeal. We received very full written submissions from both sides, supported by all the documentary evidence they wished us to consider, and we have had the opportunity of studying it carefully since the original hearing took place. We have also held another hearing at which we received oral submissions from Mr Anderson on behalf of the defendants. We told Mr Goodfellow that we did not require him to attend on behalf of the claimant, but he took the opportunity of sending us an amended and extended version of his original submissions, which we have taken into account.
2. The action centred round the agreement whereby Mr Sayers agreed to pay Mr and Mrs Back, who were the owners of the company, a total price of £225,000 for the shares he was purchasing. £100,000 was to be paid on completion of the purchase, followed by five annual instalments of £25,000 each. The company also wrote off various of its assets in favour of the vendors and/or their associate companies and agreed to provide Mr Back with various fringe benefits.
3. In order to finance his purchase Mr Sayers took out loans which he paid into the company, and the company created a loan account for him for this purpose. His loans were eventually to be paid off from the proceeds of endowment policies. The company then paid the original lump sum and the instalments of the purchase price to the vendors. It also paid the interest accruing on Mr Sayers’s loans and the premiums on the endowment policies. The cost of the voluntary write-off of assets in favour of Mr and Mrs Back was also debited to the loan account. The idea at the time the purchase was completed was that the company’s future earnings would provide the cashflow to finance the future payments, while the financial reckoning as between Mr Sayers and the company would be taken into account in the computations relating to his loan account. In the fullness of time, however, the loan account became overdrawn as the purchase instalments, the premiums and the interest on the loans were successively debited to it.
4. This state of affairs brought about disagreeable consequences for Mr Sayers. The proportion of the interest on the loans which he was entitled to deduct for income tax purposes was reduced, while the benefit of the notional interest- free loans from the company to him (on each occasion when the company made payments on his behalf) was treated as income in his hands taxable under Schedule E. He was also required by section 330(2)(a) of the Companies Act 1985 to ensure that the overdrawing on his loan account was eliminated.
5. The judge found that the purchase agreement could have been structured in a different way, which was described at the trial as “Topco”. This could have avoided the unwelcome tax consequences which eventually befell Mr Sayers. Under this structure Topco would for the most part be discharging its own obligations. The judge recorded (at para 26 of his judgment) that both the experts called by the parties agreed that any competent accountant, including the defendant firm, should have known about this alternative structure.
6. The defendant firm had been the company’s accountants and auditors for a long time and they also acted for Mr and Mrs Back. When the purchase agreement was in contemplation both parties wanted them to act for Mr Sayers as well, but their senior partner, Mr Aukett, was concerned that a conflict of interest might arise. He therefore took advice from his professional body, and following their advice his firm agreed to act for both parties provided they signed letters, which they duly did, agreeing to indemnify the firm if any difficulties arose in consequence of a conflict of interest. The judge recorded (at para 20 of his judgment) that neither side relied solely on these letters, and nothing turned on their contents so far as the issues at the centre of this appeal are concerned. Mr Clarke-Walker, the former owner of the defendant firm, who had now left the firm, was acting on behalf of Mr and Mrs Back, and he and Mr Chilcott (a partner in the firm) were the advisers who were principally involved in the work of facilitating the sale and purchase transaction.
7. The judge found (at para 26 of his judgment) that the firm was instructed by both parties to deal with various formalities, to explain the terms of the agreement and their impact from an accountancy/tax point of view and generally to act as “facilitators” to implement the agreement negotiated between Mr Clarke-Walker (who was at all times acting for Mr Back alone – see para 24 of the judgment) and Mr Sayers. He said that the retainer was clearly wide enough to cover the giving of advice as to the structure of the agreement in the sense of its tax implications, insofar as such advice should have been within the competence of a general firm of accountants.
8. In these circumstances he held (at para 44) that it was a breach of this retainer and/or negligent for Mr Chilcott to fail to advise Mr Sayers on the Topco structure. He accepted the experts’ agreed view that such advice was or should have been within the defendants’ competence. There was no suggestion in the evidence that appropriate advice would have prejudiced Mr Back in any way that could not easily have been overcome. The judge had earlier (at para 26) found that the parties were advised to get independent financial advice and that the question of consulting tax counsel was discussed. He held, however, that advice to consult a greater specialist did not absolve the general practitioner from advising competently within his sphere.
9. A long meeting, attended by Mr Back, Mr Sayers, Mr Clarke-Walker and Mr Chilcott took place on 18th May 1989. At this meeting the parties went through the draft agreement line by line. According to Mr Chilcott’s notes, it was agreed on this occasion that each side could be fully appraised of the consequence of the agreement. The judge held that any “appraisal of the consequence of the agreement” should have identified its disadvantages for Mr Sayers compared with Topco. In these circumstances, the judge said, Mr Chilcott was expressly bringing such advice within the retainer, if indeed there was any doubt about it.
10. The judge went on to hold that Mr Sayers was entitled to assume that he had received the advice a competent accountant would have given. He was not bound to pay more for more expert advice. The professional man might protect himself against failure to give advice only to be expected of the greater expert, but not against a failure to display the competence to be expected of him (in the absence of expert support).
11. Although Mr Sayers might have been wise to seek more expensive and more expert opinion he was not bound to do so, and the judge refused to hold that he had been wholly unreasonable in proceeding as he did. It was a small company purchase and a relatively straightforward agreement, and Mr Sayers was entitled to rely on the defendant firm and the expertise it should have possessed without running up further bills from tax counsel. No issue arises on the proposed appeal as to the judge’s rulings on the amount of damages, which resulted in an award of £68,854 by way of damages and interest, so that we need not say anything about this part of his judgment.
12. The defendants do not seek to challenge any of the judge’s findings of primary fact, including his finding as to the width of their retainer. They seek only to challenge his finding on causation. In his skeleton argument Mr Anderson recited parts of the evidence which tended to suggest, he said, that by ignoring trenchant advice from both the defendants and Mr Bidwell (his own solicitor) to obtain independent financial advice in respect of the transaction, Mr Sayers acted so unreasonably as to break the chain of causation. This issue was raised in paragraph 29 of the Amended Defence where it was said that Mr Sayers caused or contributed to the loss he suffered by his own negligence in that he failed to seek any or any adequate independent advice regarding the tax effects of the agreement (among other things) and ignored the defendant’s advice to seek independent advice regarding the sale. The defendants complain that although the judge dealt explicitly with tax counsel, he made no findings on their submission that Mr Sayers was wholly unreasonable in failing to seek advice from a different firm of accountants.
13. It does not appear to have been a positive part of the defendants’ case that Mr Sayers was negligent in ignoring the advice of his own solicitor Mr Bidwell (although no doubt this matter could have been used to bolster the suggestion that he ought to have sought independent advice). The defendants, however, have placed before us some of the documentary evidence before the judge which shows not only that the defendants had been anxious that both parties should seek independent advice but also that Mr Bidwell (and a partner in a different firm of accountants whom Mr Bidewll had consulted) were of the view that it was silly for Mr Sayers to go ahead without separate financial advice. Although Mr Sayers refused to waive privilege in respect of the advice he had received from Mr Bidwell, a file note was disclosed of a discussion Mr Bidwell had with Mr Back’s solicitor on 25th May 1989, of which he wrote:

“After some discussion I said that everything I have seen confirmed my view that the Purchaser must have separate accountancy advice. If not I cannot do my job properly and I don’t think I should act. If Mr Sayers then sees fit to sign the Agreement anyway then that is up to him but I really don’t want to do half the job. I’m also concerned at the question of fees. I will talk to Mr Sayers but it may well be that for this reason we will not act.”

14. Although contributory negligence was pleaded, the judge did not address the question of contributory negligence in his judgment, and no complaint is made about this in the appeal notice. The defendants’ challenge is based wholly on the contention that the chain of causation was broken, and complaint is made that the court failed to deal properly with their arguments.
15. The defendants rely on three main arguments:

(1) The judge ought to have drawn adverse inferences against Mr Sayers in respect of his refusal to waive privilege in respect of the advice he received from Mr Bidwell.

(2) The judge ought to have found that Mr Sayers had acted wholly unreasonably in declining to seek independent financial advice.

(3) If such advice had been sought, it would have been sought from the firm whom Mr Bidwell had consulted, whose representative, in the capacity of an expert witness, told the judge that he would have advised Mr Sayers to use the Topco structure, so that the loss of which he makes complaint would have been avoided.

16. We consider that there is no real prospect that the defendants will succeed on the first of these arguments. Ever since Wentworth v Lloyd (1864) 10 HLC 589 the courts have refused to permit a party to draw adverse inferences from the refusal by the other party to waive privilege in respect of the legal advice he has received. Brooke LJ applied this principle recently in his judgment in Oxford Gene Technology v Affymetrix Inc (CAT 23 November 2000: unreported save for a summary in The Times 5 December 2000), with which Aldous and Sedley LJJ agreed. Mr Anderson sought to rely on a dictum in the long judgment of Sir Thomas Bingham MR in Ridehalgh v Horsfield [1994] Ch 205, 236-7, but Wentworth v Lloyd was not cited to that court, and this judgment preceded the ringing affirmation of the sanctity of legal professional privilege in the speech of Lord Taylor of Gosforth CJ in R v Derby Magistrates’ Court ex p B [1996] AC 487, 503F-507D.
17. We also consider that there is no real prospect of this court interfering with the judge’s conclusion that the chain of causation was not broken between the defendants’ unchallenged negligence and the losses Mr Sayers suffered. The judge accepted (at para 47) that it may have been rash of Mr Sayers to reject the advice that he should seek specialist tax advice, but he said that this was a client’s choice. It is true that the judge did not avert to the suggestion that Mr Sayers ought to have sought independent financial advice from a different firm of accountants, but it appears to us that the judge’s response would inevitably have been the same, and that there would be no real prospect that this court would interfere with it. Whatever his firm’s preferences and concerns in the matter, Mr Chilcott was content to continue to act for Mr Sayers, and in his skeleton argument Mr Goodfellow not only drew our attention to the way Mr Chilcott had been turning his mind to the tax consequences of the transaction, so far as Mr Sayers was concerned, but also how he obtained a secret commission from the mortgage broker whose services he was utilising on Mr Sayers’s behalf.
18. Mr Goodfellow observed that there was no evidence that the defendants (or anybody else) ever advised Mr Sayers that he could not deduct all the interest for tax purposes; that the company could not provide any financial help to Mr Sayers beyond the amount he would lend it out of his own borrowings; and that the structure which Mr Sayers, on the defendants’ advice, was proposing to adopt made it inevitable that his loan account would become overdrawn, thus triggering off the adverse consequences for Mr Sayers to which we have referred in paragraph 4 above.
19. Mr Anderson criticised the judge for not taking into account the fact that Mr Sayers had indeed obtained independent advice on an earlier occasion, and in his oral submissions he reminded us of the evidence that he received very strong advice that he should do so on the present occasion. But he accepted that he was not challenging the judge’s finding that the giving of the requisite advice was within the scope of the retainer which his clients undertook, however reluctantly, for reward, and that they acted negligently in connection with the advice which they failed to give.
20. He also accepted that he would have to point to some utterly unreasonable or reckless behaviour by Mr Sayers if he were to succeed in breaking the chain of causation. For the correctness of this concession, see County Ltd v Girozentrale [1996] 3 All ER 834 per Hobhouse LJ at p 857b-d.
21. In our judgment, given that it was common ground that an ordinarily competent firm of accountants (such as the defendants) should have foreseen these difficulties and advised Mr Sayers to adopt Topco, or some other similar structure, in order to avoid them, there is no real prospect of the defendants being able to establish that Mr Sayers, in ignorance of all these difficulties, was the author of his own misfortunes in failing to seek alternative advice, whether from tax counsel or from another, more competent, firm of accountants. We would therefore dismiss the defendants’ application for permission to appeal against the order the judge made on 12th October.
22. We turn now to the proposed appeal against the judge’s order as to costs. In the event Mr Anderson said that he could not properly pursue this ground of appeal if he failed to persuade us on his main grounds, and we can therefore dispose of this aspect of the matter quite briefly. No money had been paid into court, and the judge was clearly influenced by the fact that Mr Sayers won, and won sufficiently to recover a substantial sum, even though it was only a small part of the total amount of his claim. He considered there was something in Mr Goodfellow’s submission that Mr Sayers’s broad complaint was one of poor service at the hands of the defendants and that they could have protected themselves by way of a payment into court.
23. He was satisfied, however, that it would be wholly unfair if he were to make what he described as the “starting point costs order”, namely that the claimant recovered all his costs. In this respect he said he was particularly influenced by two factors. The first was that although the action started in 1994, the Topco issue, on which Mr Sayers succeeded, was not introduced into the litigation until January 2001 and that it was not fully particularised and supported by evidence until some ten weeks before the trial. The defendants effectively won on the other issues.
24. The second factor which influenced the judge was that if the trial had been confined to the Topco issue it would have taken half the time that it did at most, and that a lot of the preparation and build up would have been very much shorter.
25. The judge then considered CPR 44.3(7). He said that he rejected the idea of making an order for costs from or until a certain date only (see 44.3(6)(c)) and that he favoured in this case making an order that the defendants should pay 60% of Mr Sayers’s costs.
26. The defendants seek to challenge that order on the basis that notwithstanding the provisions of CPR 44.3(7) the judge ought to have made a discrete order in their favour on the issues on which they succeeded and that he was plainly wrong to award Mr Sayers 60% of his costs of the action, given that he only succeeded on one, relatively minor issue and his conduct of that issue was unreasonable (in that he only raised it for the first time six months before trial and supported it with evidence ten weeks before trial). Mr Goodfellow has made a number of detailed responses to the defendants’ arguments (in paragraphs 29.1 to 29.9 of his skeleton argument) in addition to his more general point that an appeal court should be slow to interfere with the trial judge’s exercise of discretion as to costs, particularly as he addressed himself to the relevant principles under CPR Part 44 and took full account of the factors on which the defendants now seek to rely.
27. In our judgment the defendants have in any event no real prospect of succeeding on this part of their proposed appeal, either. It is well known that an appeal court will not tinker with a trial judge’s order as to costs. Other judges might have been more generous to the defendants, but we do not consider that there is any real prospect of them being able to show that the judge went beyond the wide ambit of the discretion available to him or that he went wrong in law.
28. For these reasons we dismiss this application for permission to appeal.
ORDER: Application refused